Wednesday's cryptocurrency crash was a bloodbath; there's no other way to put it or sugarcoat it. But it's worth pointing out it wasn't a bloodbath for everyone - I'll show you why in a second.
How bloody? Well, at one point yesterday afternoon, for a very short while, Bitcoin was trading more than $8,200 below a key Fibonacci retracement level I identified just the other day. I'm talking prices we haven't seen for more than a year.
Now, a lot of folks might be worried, and that's understandable.
But I'm here to tell you: Don't worry. Because what's actually happening is a bigger, juicier opportunity than even I first expected. In fact, I know some people that had the chance to cash in while other traders were high and dry.
This might not surprise you, but I think a lot of the negative sentiment we've seen in the past few weeks is overblown.
Not only that, but the real triggers of this crash don't have much to do with Bitcoin, Ethereum, or any other crypto. The bullish case for owning and trading crypto is just as strong today as it was in mid-April, when Bitcoin was briefly above $63,000.
Let me walk you through what's going on and show you what I think is next...
Here's What Really Happened
As we've talked about this week, there's been some heavy downward pressure on Bitcoin for about the past 10 days or so, moving beyond the simple profit-taking we've come to expect. By this past Monday, Bitcoin had fallen more than 31%, from a mid-April all-time high above $63,700 to just about $43,580. That number, not coincidentally, is near an important Fibo level.
By yesterday morning, Bitcoin had fallen another 25%, to as low as $32,000. Ethereum fell almost 50%.
A lot of it, but not all of it, has to do with the market's fixation on Tesla CEO Elon Musk's tweets and public remarks. He's made some conflicting statements that appear, at first glance, to be bearish on Bitcoin in particular.
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But like I said, if you look at what Musk usually does, and not what he says, you get a pretty bullish picture.
A lot of people are hearing news out of China that the government there is making strong, new moves to block cryptocurrencies. This isn't quite right. In fact, what China's doing is mostly reaffirming curbs that have existed for years now, and "discouraging" investors from trading crypto.
In other words, China's not doing too much more today to ban cryptos than it's already been doing. But there were some misleading headlines out there on this, which prompted a massive overreaction from investors almost all the way across the board.
And it turns out, a lot of those investors were overleveraged... Uh-oh.
Now we're getting at the heart of what's happening.
There Was Extreme Leverage in Some Places
It's made the widespread crypto plunge a lot sharper and steeper than it had to be.
There are coin-trading platforms all around the world that allow traders to leverage as much as 125:1, if you can believe it. Like you might expect, that's enabled people to take crypto positions many, many times larger than their accounts.
It's probably not a stretch to say there are tens of thousands of people, maybe more, who traded cryptos on Monday... but won't be trading them tomorrow. They've been zeroed out. The huge, double-digit plunge that played out overnight and into Wednesday morning wiped those traders off the map.
And that's likely good news: If you weren't one of those overleveraged traders, you probably don't have a lot to worry about.
And now Bitcoin, Ethereum, and a lot of other major cryptos are surging back. By 1:30 p.m. Eastern yesterday, Bitcoin alone had come up more than 22% from its earlier lows. The "weak" money is pretty much gone, which could be setting us up for a classic consolidation pattern. And that's a pattern everyone should jump on - you've got an opportunity to buy at these levels that we haven't seen for months.
If you're trading altcoins, like my Microcurrency Trader subscribers, you likely move in and out of small coins; that means you may have gotten plenty of your capital out of the way of the worst of the crash. Some of my readers even had the chance to close out profitable positions yesterday, while overleveraged speculators were losing their shirts.
That's really the beautiful part about trading microcurrencies. These are usually tiny, lesser-known coins that I think pack extreme value and usefulness into small packages; that value and that usefulness are what I believe separates junk fad-coins from the real deal. These coins usually cost hundreds or thousands of times less than Bitcoin, but they've been known to move in a big way when Bitcoin goes up - I'm talking 142% in 12 days, 373% in 14 days... one even went 1,900% higher in a little over two months. The gains could potentially exceed Bitcoin 20X to 1 this year. Take a look at this chart right here...
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.